Good news!

By Reuters Staff
May 24, 2008

The stock market was down again last week, consumer confidence is at 30 year lows, house prices are declining nationwide for the first time. Is there any good news to report about the economy? Indeed there is: a gallon of gas is approaching $4 per gallon, which I think is just super.

How could I possibly get excited about something that is causing hardship for so many people? Precisely because it is causing hardship for so many people. Hardship, you see, leads to changes in behavior.

Top to bottom, our society has designed itself and its transportation networks around automobiles running on cheap fuel. Americans increasingly move to ridiculously far-flung suburbs (hence the coinage of “exurbs”) and commute farther to work every year.

Living in Florida as I did between 2002 and 2007, the whole state resembles one big strip mall. There is simply no mixed zoning of residential and commercial. Homeowners can’t walk to the corner store because there are no stores on their corner to walk to. I put 89,000 miles on my car in the four years I lived in FL.

My gas consumption fell dramatically when I moved to NYC. Now I primarily ride the subway and the bus. Maybe twice a month I hop in a cab. I’m not holier-than-thou; I’m just lucky to live in a city with economical/highly available public transportation. One $80 metrocard gets me unlimited rides on the subway and public buses for a month. Throw in $30 per month for taxis and my entire transportation bill is a mere $110. If I were still driving in FL, my transportation bill would be $1,200 per month ($300 insurance, $300 gas, $600 car payment) + $1,000 per year in maintenance. All in, over $15,000. True, I pay higher rent in NYC than I did in FL, but not $1,300 more per month.

Most Americans aren’t so lucky. They live in places where public transportation simply doesn’t exist or is totally inconvenient, in places where it’s not possible to live within a 10 minute walk to work because businesses are zoned far away from residences.

America needs a wholesale redesign of her infrastructure. And that is happening slowly. One interesting feature of the housing bust is that far flung exurban housing is being decimated while urban housing is holding its value nicely–if NY is any indication. People are moving closer to work. [Update: Bloomberg reports that longer commutes are correlated with steeper house price declines.]

And they’re changing their behavior. See this article from today’s NYT.

Real hardship causes real changes. When you hit people where it matters, in the pocketbook, they alter their behavior. Here are three great reasons to wean ourselves from oil:

  1. Economics. To import millions of barrels of oil per day, we export billions of our hard-earned dollars. The long-run impact of a trade deficit is to transfer wealth from ourselves to foreigners. As we spend more on oil (and other goods) from abroad, we are slowly but surely impoverishing ourselves. See Warren Buffet’s fantastic parable that explains why.
  2. National Security and Human Rights. Petro dollars strengthen some of the most unsavory regimes in the world. Hugo Chavez in Venezuela; Vladimir Putin in Russia; all of the Islamic theocracies in the Middle East; Sudan; Nigeria. And reliance on oil makes us vulnerable to supply shocks. Say a terrorist attack on an American refinery…Also, our trade deficit gives our international creditors a powerful economic weapon to use against us.
  3. The Environment. While I’m skeptical that carbon emissions cause global warming, I’m not skeptical about the importance of clean air for human health. We breath the junk that comes out of car tailpipes and industrial smokestacks from as far away as China.

Encouraging people to be green isn’t going to get us off our oil addiction. Making gas much more expensive just might.

There’s more reason for optimism. Plug-in hybrid cars will be widely available within the next three years.

And powering cars primarily by electricity rather than gasoline need not be environmentally unfriendly. Nuclear power is the answer. It’s not perfect, waste disposal is a (surmountable) issue. And the (nearly negligible) risk of a nuclear accident is always worrisome. But nuclear power’s two chief benefits are too significant to ignore.

  1. Nuclear power plants run on uranium mined in STABLE countries like Australia and Canada. These two produce about 50% of the world’s supply of uranium per year.
  2. Nuclear generators emit only steam, no carbon.

Nuclear waste shouldn’t be a problem either. We have a nuclear waste depository at Yucca Mtn awaiting shipments within the next 10 years, if we can just get Harry Reid thrown out of office.So I’m thrilled about high gas prices.

I’d be even happier if Congress and the President increased gas taxes at least a dollar over the next few years. Behavior would change even faster.

[I found an excellent Newsweek article, full of stats, that does more justice to the high gas price thesis than I can. Check it out here.]

2 comments

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Real fantastic model. Somebody should use this model for others markets like Spain, Britain and Eastern Europe. The model has great predictive capacity. Great scientific work.

Posted by Marc Authier | Report as abusive

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